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Yahoo's Great Transformation

Dancing with the Enemy


Dancing with the Enemy

Source:Kuo-Tai Liu

Feeling the squeeze from microblogs and web-based communities, Yahoo is fighting back – with open arms, and a centralized strategy that puts Yahoo Taiwan on the global stage. But will it work?



Dancing with the Enemy

By Sherry Lee, Chao-Yen Lu
From CommonWealth Magazine (vol. 436 )

In late 2009 Yahoo Taiwan underwent a hush-hush metamorphosis. Overnight, the familiar red and yellow logo that greeted millions of visitors on Yahoo Taiwan's homepage every day changed to the global logo, in Yahoo's corporate color purple.

The new homepage of now features a customizable "my favorites" menu on its left side, which includes links to rival websites such as Facebook.

Not long ago Yahoo Asia boss Rose Tsou boldly declared in front of some 800 advertisers, "The era of openness has arrived," as she explained why Yahoo now allows users to incorporate services and content from other companies.

Under pressure from intensifying competition in cyberspace, Yahoo has been boldly talking about a more "open" strategy for a couple of years. But now it seems it has truly begun to "dance with the enemy."

Similarly, sweeping changes are occurring at the offices of Yahoo Taiwan on Roosevelt Road in downtown Taipei. What used to be a predominantly Taiwanese workforce now includes many foreign faces – engineers and project managers from India, South Korea, Britain and the United States. Roughly 500 of Yahoo Taiwan's employees – more than half of its total workforce – have received new job descriptions that include supporting regional or global product services, making cross-national virtual conferences a common part of their daily routines.

Tsou, who was promoted from managing director of Yahoo Taiwan to managing director of Yahoo Asia two years ago, flies to Silicon Valley once a month for meetings with top Yahoo executives. Charlene Hung, who succeeded Tsou as managing director of Yahoo Taiwan, is used to working overtime. She even sent her 13-year-old daughter to Calgary in Canada as an exchange student to help her become more independent, but also to free herself up to focus on her demanding job. These women executives, their families and their employees are enduring the arduous experience of transformation, necessitated by the rapid changes occurring both at the Yahoo mother company and in the global Internet business.

Since its founding in 1999, Yahoo Taiwan has generated a number of miracles. It has the third highest revenue of Yahoo's 40 country websites, behind Yahoo US and Yahoo UK & Ireland (although its share of overall revenue is only in the single-digits). Yahoo Taiwan's workforce is also the third biggest, right behind those in the U.S. and India.

Moreover, Yahoo Taiwan knows how to make a lot of money. Last year Yahoo Taiwan raked in almost NT$3.4 billion in advertising revenue, accounting for 70 percent of Taiwan's total online advertising. With its e-commerce services the company hopes to achieve a sales target of NT$30 billion this year, which would be almost on a par with Taiwan's second largest department store chain, Pacific Sogo.

During the last decade Yahoo resembled a closed department store with an all-round selection. As soon as users got on the Internet, they would start spending time inside the Yahoo megasite. But thanks to the emergence of community websites such as Facebook and Twitter, the success of microblogs and the growing popularity of Google's search engine and Google Apps, netizens are no longer that dependent on Yahoo.

While Yahoo Taiwan is still the No. 1 in the Taiwanese market, the latest access rating online (ARO) figures by Internet market research firm InsightXplorer show that in September the average length of visit per unique visitor to the Facebook and Yahoo Taiwan websites stood at 382 seconds and 179 seconds respectively. Yahoo is already advertising its e-commerce services on Facebook, hoping to lure users back to the Yahoo homepage.

Not only is Yahoo struggling to maintain its position against web-based communities, it also faces growing competition in its traditional stronghold – e-mail services. ARO figures show that except for younger age groups under 19, the number of Yahoo Mail users is on the decline for all other age groups.

Although Yahoo Taiwan still holds 60 percent of the search engine market, Google Taiwan is catching up rapidly, having grown from a 22-percent market share three years ago to 40 percent now.

The behavior of Internet users is constantly changing and impossible to control. As a result, Yahoo decided to open up its homepage, in order to consolidate its own competitive advantage – high page views.

Opening the Gates to the Enemy?

Using an application programming interface, Yahoo last year enabled its Yahoo Answers and Yahoo Maps to interlink with other websites and blogs.

Within the company the new policy of "collaborating with the enemy" is not undisputed. Proponents believe it will help Yahoo, while critics fear it will actually strengthen its competitors. But company leaders are still confident that the open strategy will work.

"Users have the choice whether to use Gmail or Yahoo. We have discussed this in-house – can we prevent them from going somewhere else? We can't take an out-of-sight, out-of-mind attitude. Its bound to be scary at first –this is the biggest challenge we've ever faced. But when a threat emerges, do you stay where you are without ever moving forward, or do you choose to face it?" Hung says thoughtfully.

Aside from espousing an open strategy, Yahoo's second major about-face is acknowledging that the Internet business has become a global battlefield.

When taking office in mid-January this year, Yahoo CEO Carol Bartz immediately launched another reorganization drive, dropping the previous matrix management system in favor of more centralized control and direct reporting to the CEO . The move aims to consolidate the company's products under unified regional or global management, except for those that each country subsidiary originally controlled, such as media advertising, communication planning and e-commerce. The company hopes its new approach will simplify decision-making and create a flat organization. Keyword search, for instance, will be handled by Yahoo Korea. Yahoo Taiwan is responsible for supporting the U.S. and Europe with news production. The Taiwanese social networking site, which Yahoo bought, will also be upgraded to a regional organization in charge of developing web-based social networking services for Asia.

But Lee-feng Chien, general manager of Google Taiwan, questions the Yahoo strategy. He points out that Yahoo devotes a lot of resources to localization, but given the rapid changes in the Internet, it is very difficult to replicate the developments in one country website on another site. "In the online world, business needs to have economy of scale, so premature localization is very dangerous," Lee warns. At Google any product or application needs to show the potential to achieve a scale of US$1 billion before it is even considered.

However, after realizing the importance of economies of scale, Yahoo raised the position of Yahoo Taiwan. Building on the success of Yahoo Taiwan, its e-commerce services and web applications such as were expanded to Hong Kong and the Asia region, hoping that their experience can be repeated elsewhere, thus increasing economies of scale.

Now under the roof of Yahoo International, the executives at Yahoo Taiwan need to spread the gospel of a leaner and flatter organization, helping employees adjust.

At Yahoo communication is implemented from the top to the bottom quite thoroughly.

Walls in the offices and restrooms at Yahoo Taiwan are plastered with posters that extol the new open strategy. Before supervisors' meetings, Tsou, who is a Christian, includes work-related topics in her prayers.

Employees have to get used to not only a new organizational and operational framework, but also a corporate culture placing greater emphasis on results.

Yahoo Taiwan has begun to look outside the company for professionals who are ready to jump ship to join its team. Employee performance is strictly measured now, and catchwords like "corporate thinking" and "return on investment" are on everyone's lips. When employees make project proposals, their supervisors will ask one very result-oriented question: "Tell me how this will make money?"

Tsou believes that it's this good discipline at Yahoo that makes those creating and marketing products always ask, "That's quite interesting and fun, but so what? What's the objective?" At Yahoo, sales department heads may have to rack up more than NT$100 million in sales every year.

Many employees worry whether they will be able to meet these sky-high sales targets. Some have left the company for exactly that reason. Yahoo Taiwan employees acknowledge that social gatherings have become rare and that nerdy engineers now have taken to frequenting the instant noodle vending machine in the foyer.

Honing World-Class Prowess

From an authentically Taiwanese homegrown portal, Yahoo Taiwan is turning into a more international company, which also means that its staff recruiters are looking for vastly different talents and skills.

In the past, problems could be solved by consulting with colleagues in the same room just a few desks down the aisle. But now people need to learn to brainstorm with colleagues in other offices or even other cities. The news production team, which used to serve some 10 million readers based mainly in Taiwan, now must accommodate the particular needs of specific overseas markets like Germany and Britain.

"There's a lot of tough stuff that we need to learn. Traveling, talking to people and video conferencing have increased," Hung says. "And it's like we're in English class every day."

Many observers are not very optimistic about Yahoo's chances to successfully reinvent itself, but Tsou puts on a brave face, saying, "We're not chasing anyone. Nobody should pigeonhole Yahoo."

Translated from the Chinese by Susanne Ganz

Chinese Version: 雅虎大變身  與敵人共舞